Case Study – PFI Concession Company Turnaround (by Nigel Brindley)

Background

I was appointed by the investor to turnaround an under-performing project following a rescue refinancing. The concession to design, build, finance and operate the facility over a 30 year period had an enterprise value of £75m and turnover of £5m pa. The project company’s main liability was a £40m senior loan.

Furthermore, as a consequence of the collapse of the operating contractor, a new contractor had been appointed the same year and was suffering mobilisation difficulties at the time of the engagement.

Objectives

The remit was to:

  • Stabilise the company’s financial and operating
  • Rebuild value in the project in preparation for a potential future
  • Rebuild damaged relationships with the public sector

Action Taken

    1. I undertook a ‘bottom-up’ cost review with management, testing all overhead lines to produce a revised budget for the following year (the existing proposal being no more than an extract from the financial model). The outputs were incorporated into a revised financial model which I presented to equity and lenders. A ‘stretch budget’ was then agreed with management to continue to challenge costs and measure progress.
    2. Governance and management controls were strengthened, authority levels formalised and escalation procedures established. Concise and objective reporting was set-up to focus management on key investment objectives, risks and future value opportunities.
    3. I instigated quarterly meetings with the client’s CEO to rebuild relationships and establish a communication channel above that of day to day management. Regular meetings were also set-up between the company board and that of the main contractor.
    4. I specified and tendered the management services, resulting in the appointment of a management services contractor to assume the role of financial and operational management of the company.
    5. I instigated a system of quarterly reports which I presented to shareholders to demonstrate progress, performance improvement and rebuild confidence in the project.

Outcome

a) Overheads reduced by £350k pa (45%) whilst service costs and operational performance improved. Tight cashflow management and forecasting established. Cash generation £700k pa ahead of plan achieved on a sustainable basis. 

B) Professional management employed improving responsibility and effectiveness. Management and investor objectives aligned, robust management controls and reporting established and transparency of performance to investors

C) Repayment of the senior loan was accelerated and the term reduced by 3 years. Lender confidence was restored and the loan moved from ‘bad bank’ to ‘good bank’.

D) Equity value (previously written-down) increased by £8m and shareholder confidence restored.

Commendation: General Counsel – Major UK Commercial Lender:

“I worked with Nigel for two years going through a major restructuring. Nigel’s detailed knowledge of the sector and asset type enabled him to quickly assimilate the situation, making an instant impact. Sustainable changes were made to management, realising tangible benefits in the first year, whilst maintaining morale and operational efficiency. Nigel established good relationships with the client’s senior management based on trust and integrity.”